Digital platforms that provide asset management solutions such as Zerodha, Paytm Money and ET Money have been scaling at a quick pace as they gain popularity amongst the new earning class of millennials. Retail investors are gradually moving towards the equity market as FD interest rates continue to fall and investors develop an increased risk appetite.
One such company which has peaked investor interest is four-year-old NextBillion Technology which runs the online investment platform Groww. The company has recorded a healthy surge in earnings which jumped 4.7X to a little over Rs 1 crore in FY20 from only Rs 20.14 lakhs in FY19.
Groww provides several services to retail investors including share broking, investment in gold, FDs and mutual funds. The most popular services used by investors on Groww is mutual fund distribution which made up 54% of the operating revenue and accounted for the biggest collections for the company. Operating revenue had grown 3.25X to Rs 52.05 lakhs while it earned another Rs 48.24 lakhs from financial assets.
The company pumped money into its operations to accommodate for the increased scale and as a result, its total expenses shot up 20.3X to Rs 8.92 crore in FY20 from less than Rs 45 lakhs in FY19. Groww spent Rs 8.92 to earn a single rupee of operating revenue during the fiscal ended in March 2020.
Groww hired aggressively through the last fiscal to shore up its team and its employee benefit expenses ballooned 98.2X to Rs 4.91 crore in FY20 from around Rs 5 lakhs spent in FY19. These employee costs were the largest cost centre for the company.
Costs incurred on information technology and customer support stood at Rs 2.1 crore and communication charges added another Rs 12.16 lakhs during FY20.
With scale, the operational costs surged across the board and Groww’s annual losses jumped 34.4X to Rs 7.92 crore in FY20 from a loss of Rs 23 lakhs in FY19. Groww’s EBITDA margins have dropped from -45% in FY19 to around -789% during FY20.
The Y Combinator-backed startup has seen a decent surge in growth in earnings but currently sits well behind the likes of Zerodha and Upstox with earnings of Rs 1,094 crore and Rs 148 crore respectively. In comparison, Groww earned Rs 1 crore and ET Money collected Rs 2.24 crore in total during FY20.
While the company’s scale is small as compared to the peers, Groww is in talks with Tiger Global and existing investors Ribbit Capital and Sequoia to raise up to $130 million at a valuation of $1 billion.
Entrackr had exclusively reported the potential funding round on Monday. If the deal gets through, Groww would be the most valued firm in the wealth management space.